Advice on filing tax returns for payments staggered over two tax years

Many people running freelance businesses in Surrey will appreciate every piece of advice they can get on how they can keep on top of their finances. Indeed, accountants in Surrey Sherwin Currid (http://www.sherwincurrid.com) has no shortage of advice relating to this area. One particular piece of advice that we can give is how they should fill in a tax return for payment for a piece of freelance work which is staggered over the course of two tax years.

For example, a freelancer could deal with a client who asks for particular work and, at that point, pays the freelancer a large amount of money - for example, 50% of the total amount of money due for the work - upfront. The work could then be completed by the freelancer a few weeks later, shortly after which point the client could pay the rest of the money due for the work. Usually, it would be straightforward to record this on a tax return; however, the picture becomes more complicated if the first amount of payment occurred in one tax year - for example, during March 2013 - while the second amount of payment occurred in the following tax year - for example, on 18 April 2013.

So, how should this situation be recorded on a tax return? Tax accountant in Surrey Sherwin Currid advises that the income from the project must all be included in the tax return for the tax year that the work was completed, regardless of exactly when or how the client paid for the work. So, citing the above example, if the freelancer completed the work before 5 April 2013, all of the income from the project must be included in the tax return for the 2012/13 tax year.

Recently introduced is a new simplified accounting method which permits sole traders and most partnerships with annual sales that fall below the VAT limit - which is currently at £79,000 - to record income and costs for a project in the tax return for the tax year when the work was paid for, not necessarily completed. However, it will only be possible for freelancers in Surrey and, indeed, elsewhere in the UK to use this method for work completed during the 2013/14 tax year at the earliest.

For more tax advice from leading accountants in Surrey Sherwin Currid, go to http://www.sherwincurrid.com.

Editor’s Note: Sherwin Currid (http://www.sherwincurrid.com) are represented by the search engine advertising and digital marketing specialists Jumping Spider Media. Email: info@jumpingspidermedia.co.uk or call: +44 (0)20 3070 1959 / +34 952 783 637.